The U.S. Supreme Court’s decision in GE Energy Power Conversion France SAS, Corp., fka Converteam SAS v. Outokumpu Stainless USA, No. 18-1048 (2020), may impact how businesses evaluate arbitration liabilities and draft future arbitration agreements. In GE v. Outokumpu, the Supreme Court grappled with a dispute between two companies over an international contract governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 U.S.T. 2517, T.I.A.S. No. 6997. The treaty, to which the United States and some 160 other nations are signatories, requires countries to enforce arbitration agreements between member countries’ businesses.
In GE v. Outokumpu, the Supreme Court held that the treaty’s tenets do not conflict with domestic equitable estoppel doctrines. The Supreme Court’s narrowly crafted issue determined whether the convention, implemented under Chapter 2 of the Federal Arbitration Act (FAA), allows a nonsignatory to an arbitration agreement to invoke the equitable estoppel doctrine to compel arbitration. The Supreme Court decision leaves for remand whether GE can enforce the arbitration clause under principles of equitable estoppel or which body of law governs the determination. GE v. Outokumpu, slip op. at 12.
Outokumpu Stainless USA LLC contracted with Fives St. Corp. to provide cold rolling mills for its Alabama steel plant. Fives subcontracted with a French corporation, GE Energy Power Conversion France SAS, formerly known as Converteam SAS, to provide motors for the mills and install them in Outokumpu’s Alabama plant. The contracts between Outokumpu and Fives and Fives and GE contained arbitration clauses. The GE motors installed in 2012 had failed by 2015.
In 2016, Outokumpu sued GE in Alabama state court. GE successfully removed the suit to federal district court, which dismissed the case and compelled Outokumpu to arbitrate the dispute. Outokumpu Stainless USA LLC v. Converteam SAS, 2017 WL 401951 (S.D. Ala. Jan. 30, 2017). The district court determined that the Outokumpu-Fives contract’s arbitration clause binds GE as a subcontractor because GE was not expressly excluded.
On appeal, the Eleventh Circuit reversed and remanded the district court’s order compelling arbitration. Outokumpu Stainless USA LLC v. Converteam SAS, 902 F.3d 1316 (11th Cir. 2018). The Eleventh Circuit determined there was no arbitration agreement “signed by the parties” within the convention’s meaning because GE was not a signatory to the arbitration agreement between Outokumpu and Fives. Id. at 1326–28. Accordingly, GE had no right to compel arbitration. The Eleventh Circuit rejected GE’s argument that an arbitration agreement may be implied by conduct according to equitable estoppel, holding that estoppel cannot be invoked to compel arbitration of an international dispute under the FAA, Chapter 2. Id.
GE appealed to the U.S. Supreme Court for review, arguing that the Eleventh Circuit’s decision underlined a 2-to-2 circuit court split. In June 2019, certiorari was granted.
In a unanimous decision, the Supreme Court examined the interplay between the convention and the FAA. The Court determined that Chapter 1 of the FAA does not “alter background principles” of state contract law, such as equitable estoppel, which authorizes contract enforcement by a nonsignatory. See Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 630 (2009). The Court also noted that Chapter 2 of the FAA provides that “Chapter 1 applies to actions and proceedings brought under this chapter to the extent that [Chapter 1] is not in conflict with this Chapter or the Convention.” GE v. Outokumpu, slip op. at 5–6. The relevant provision of the convention states that courts of a contracting state “shall . . . refer the parties to arbitration” when the parties to the action entered into a written agreement to arbitrate and one of the parties requests the referral. Id. at 6.
The Court examined whether state law equitable estoppel doctrine, permitted under FAA Chapter 1, conflicts with the convention. The Court determined it did not and observed that the convention is silent about whether nonsignatories may enforce arbitration agreements under domestic doctrines such as equitable estoppel, finding the silence to be dispositive and consistent with the convention. Id. Because the Eleventh Circuit concluded that the convention prohibits enforcement by nonsignatories, the Supreme Court determined that it may address on remand whether GE can enforce the arbitration clauses under equitable estoppel principles and which body of law governs that determination. Id. at 12.
